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U.S. Drilling Activity Inches Up

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Saipem First to Call Drop in Aramco Orders Over Oil Expansion Plan Scrapping

Italy’s Saipem oilfield services company said on Thursday that it was anticipating a 20% fall in orders from Aramco as a result of the Saudi oil giant’s orders from on high in late January to scrap plans for expanding capacity, Reuters reported. 

In 2020, Saipem signed a 12-year-deal with Saudi Aramco, and has averaged over $1.6 billion in engineering and construction projects for Aramco between 2021 and 2023, according to Reuters. 

"(Saipem's) new business plan already includes a 20% cut in orders from Saudi Arabia compared with the previous period ... we do not expect effects on our medium-term strategy," Reuters quoted the company’s CEO, Alessandro Puliti, as telling a conference call following Q4 earnings. 

Nonetheless, Saipem said on its earnings call late Wednesday that it was targeting 2025 to restart dividend payments to investors, noting that its 2022 restructuring plan was panning out. The company said it would pay investors up to 40% of its operating cash flow, which sparked an immediate jump in share price. 

In late January, Aramco said it had been ordered by Riyadh to halt work on expanding its maximum sustainable capacity to 13 million barrels per day, which would have represented a 1 million-bpd expansion.

Saudi Arabia said the decision to scupper spare capacity expansion plans was a result of the ongoing energy transition. Aramco said that it would update its capital spending plans for the year in accordance with the new government directive in March when it announces its 2023 financial results.  At the same time, earlier this week, Reuters reported that Saudi Aramco had signed $6 billion in over 40 procurement deals with local vendors to contribute to the domestic value chain. 

Despite the scuppering of the Aramco expansion plan, Aramco officials have expressed concern that while global oil supply is currently sufficient, natural declines at oilfields need to be offset, with as much as 6 million bpd of global oil production being lost every year. 

The world is down to 3% of spare crude oil production capacity of global demand, Aramco’s executive said.


By Charles Kennedy for Oilprice.com

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